Pakistan’s economy: growth without transformation

Looking at Pakistan’s 78-year economic history, it becomes clear that the country faced both growth and crises during different eras. If economic performance is evaluated on the basis of GDP growth rate, industrial development, agricultural production, exports, and employment indicators, three periods appear relatively more successful. The first prominent period was from 1958 to 1969, when Field Marshal Ayub Khan was in power. During this period, Pakistan’s average economic growth rate remained around six to seven percent. Industry developed rapidly, investment was made in the canal system and agriculture, the Green Revolution began, agricultural production increased significantly, and exports also rose. During that era, Karachi began to be counted among the rapidly developing cities of Asia. The second relatively strong economic period was from 1980 to 1988, during the government of General Zia-ul-Haq. During this period as well, Pakistan’s average economic growth rate remained around six percent. Remittances from overseas Pakistanis increased significantly, and a large amount of foreign aid was received due to the Afghan War, while the agriculture and construction sectors also developed. The third important economic period was from 2003 to 2007, when General Pervez Musharraf was in power. During this period, the GDP growth rate remained between six and seven percent for several years. Rapid development occurred in the banking, telecom, construction, and service sectors, the stock market set records, the middle class became relatively stronger, and the provision of loans to consumers increased. However, along with this growth, imports also increased rapidly. Pakistan also achieved a few notable successes regarding the agricultural sector. As a result of the “Green Revolution” in the 1960s, wheat and rice production increased significantly. During 1991-92, cotton production stood at approximately 12. 8 million bales, which was a record level at that time. Subsequently, in 2004-05, Pakistan produced approximately 14. 8 million bales of cotton, which remained the highest level in the country’s history for several years. During the same period, a significant increase was also witnessed in textile exports. On the other hand, Pakistan also saw several difficult economic periods. During 1972-1977, due to the nationalization of industries, private investment was affected and industrial development slowed down. During the period of 2008-2013, the severe energy crisis, terrorism, and weak economic growth negatively impacted the national economy. Similarly, during 2018-2024, the balance of payments crisis, high inflation, significant devaluation of the rupee, IMF programs, and political instability kept the economy under severe pressure. Overall, if economic performance alone is made the basis, high growth rates, industrial and agricultural progress, and significant development in certain sectors were witnessed during the periods of 1958-1969, 1980-1988, and 2003-2007. However, despite economic growth in these periods, structural issues such as a weak tax system, a limited export base, a lack of administrative reforms, and growing economic inequality could not be permanently resolved, which re-emerged in the form of crises in subsequent years. If Pakistan’s economic history is analyzed in further depth, it reveals that despite temporary economic growth, a few fundamental issues persisted continuously, among which a limited export base, a growing debt burden, the energy crisis, rapidly growing population, loss-making state-owned enterprises, and inconsistency in policies being prominent. These very factors continuously became major obstacles in the way of economic stability over time. Pakistan’s exports have remained confined within a limited scope for several decades. Even today, approximately 55 to 60 percent of the country’s exports consist solely of textiles and apparel. In contrast, Vietnam, Malaysia, and Bangladesh made significant progress in electronics, engineering, food processing, and other value-added products. Pakistan’s exports have been standing between approximately 30 and 35 billion dollars for several years, while imports often reach 55 to 65 billion dollars. This very difference repeatedly gives rise to foreign exchange crises and balance of payments issues. The growing burden of debt has also continuously put pressure on Pakistan’s economy. The largest portion of the federal budget is spent on interest payments on debt. In the budget for the fiscal year 2025-26, approximately 8. 2 trillion rupees were allocated for interest payments, which was higher than the combined total of education, health, and development expenditures. In this situation, the government is left with limited resources for investment in productive sectors. The energy sector is also included among the major weaknesses of Pakistan’s economy. Agreements made with independent power producers (IPPs) in the 1990s, capacity payments, electricity theft, line losses, and poor recoveries continuously increased the circular debt. In recent years, the government had to pay up to approximately two trillion rupees annually under the head of capacity payments alone, whether electricity was used or not. As a result, the cost of power generation increased, the competitiveness of the industrial sector was affected, exports came under pressure, and the pace of investment slowed down. Similarly, several loss-making state-owned enterprises also continuously remained a burden on the national exchequer. Government financial support was provided for decades to Pakistan International Airlines (PIA), Pakistan Steel Mills, and other institutions. Due to weak management, political interference, unproductive expenses, and delays in reforms, the losses of these institutions ultimately had to be borne by the taxpayers. If timely reforms and professional management had been prioritized, these resources could have been used in productive sectors such as education, health, scientific research, infrastructure, and agricultural development. Rapid population growth also limited the fruits of economic development. In 1951, Pakistan’s population was approximately 34 million, which according to the 2023 census has grown to exceed 241. 5 million. This increase exerted extraordinary pressure on education, health, employment, housing, and basic facilities, due to which the pace of per capita income growth remained relatively slow despite the increase in gross domestic product. Pakistan’s economic performance also reflects the reality that effective management, transparent governance, and policy continuity are indispensable for sustainable development. Successful countries of the world laid the foundation of development through a strong tax system, professional civil service, independent financial institutions, and permanent economic policies, whereas in Pakistan, frequent policy changes, administrative weaknesses, and delays in reforms continuously exerted a negative impact on investment and economic stability. The agricultural sector, which was once considered the backbone of Pakistan’s economy, also faced numerous challenges. The country was once counted among the prominent countries of the world in cotton production, but due to a continuous decline in production in recent years, Pakistan had to import raw cotton worth billions of dollars. Last year, approximately 7 million bales of raw cotton were imported to meet the requirements of the domestic textile industry, on which precious foreign exchange estimated at 2 to 2. 5 billion dollars was spent. On the other hand, in the fiscal year 2025-26, domestic cotton production remained approximately 5. 6 million bales, whereas the annual requirement of the textile industry is approximately 15 million bales. This wide gap is proof that the entire economy is paying the price for not giving continuous attention to agricultural research, quality seeds, technology transfer, and effective agricultural policy. Similarly, maintaining self-sufficiency in the wheat sector is also becoming a major challenge. In recent times, the approval by the Economic Coordination Committee (ECC) to import 1 million tons of wheat indicates that urgent attention is required regarding flaws in agricultural planning, hoarding, production capacity, and market management. According to data from the World Bank and the Pakistan Economic Survey, climate change has deeply impacted Pakistan’s economy in recent years, particularly the devastating floods of 2022 which caused approximately 30 billion dollars in damages and economic losses, severely affecting agriculture (cotton, wheat, rice), destroying millions of acres of crops, and increasing poverty, while recurrent floods, droughts, and unusual weather conditions are causing a continuous decline in agricultural production. Similarly, the China-Pakistan Economic Corridor (CPEC) exerted some positive impacts through energy and infrastructure projects, but the debt burden associated with it, slow progress, and transparency issues put additional pressure on the balance of payments, as also highlighted in the reports of the World Bank and other international institutions that these factors further deepened structural weaknesses. Pakistan’s past 78-year economic history gives a clear lesson that temporary high growth rates are not a guarantee of sustainable prosperity. Permanent growth is possible only when diversity is created in exports, reliance on debt is reduced, lasting reforms are implemented in the energy sector, effective restructuring of loss-making institutions is carried out, investment in agricultural and industrial research is increased, accountability of those responsible is ensured, and continuity in economic policies is maintained. History proves that during the periods when attention was given to these areas, Pakistan made significant economic progress, and when these basic priorities were ignored, economic successes proved to be temporary.

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